Danetha DoeBy Danetha Doe

If you’re one of the millions of Americans who owes student loan debt to the government, the CARES Act passed in March offers some relief. In this article, we’ll break down the exact benefits you can expect, as well as give you advice on what actions will benefit you the most. If you have student debt that’s held privately, contact your lender directly to see what relief they offer, or talk to us at patelco.org/FinancialJourney for advice.

What is the CARES Act?

The CARES Act is the US government’s economic plan that paid stimulus checks and provides some relief for federal student loans, in addition to other measures designed to help people and stimulate the economy. It was passed in March, and extends benefits until September 30, 2020.

Are student loan payments postponed?

You may have heard about student loan deferment and student loan forbearance. As far as the CARES Act is concerned, these ultimately mean the same thing: the obligation to pay certain student loan payments is temporarily paused.

The CARES Act enables you to pause payments on loans owned by the federal government, up until September 30, 2020. The payment suspension is automatic – you don’t need to take any action to get it. However, if you have student loan payments made automatically, you may need to manually pause your payments.

How do I know if my loan qualifies for loan relief benefits?

The following loans owned by the US Department of Education (ED) may qualify:

  • Direct Loans
  • FFEL Program loans*
  • Federal Perkins Loans*
  • Defaulted HEAL loans* (defaulted only)

* Please note that some FFEL Program and HEAL loans are owned by commercial lenders, and some Perkins Loans are owned by the institution you attended. These loans are not eligible for this benefit at this time, but you can contact your servicer to ask about what benefits may be available.

To find out if your loans are owned by ED, visit studentaid.gov/login. After you log in, you will be at your dashboard. Then select view details to be taken to your Aid Summary. If you scroll down on this page, you will see a section called Loan Breakdown. In your Loan Breakdown, if you see a servicer name that starts with “DEPT OF ED,” that loan is owned by ED.

Will I accrue interest if I don't pay my student loans?

Interest is being temporarily set at 0% on federal student loans, up until September 30, 2020. You will not accrue interest if your student loans meet the above criteria.

If I haven’t been financially affected by COVID-19, should I continue to pay my student loans?

If you are still employed and have fully funded your emergency savings fund, paying your student loans during this time is an advantageous way to get ahead. That’s because there’s no interest being charged right now, so once any accrued interest is paid, your monthly payments will be 100% applied to your principal balance. Therefore, the amount you owe will decrease at a faster rate.

Should I refinance my student loans?

Since benchmark interest rates have dropped significantly, you may wish to look at refinancing or debt consolidation. However, if you opt for an adjustable-rate loan, keep in mind that the new interest rate on the new loan may be higher than your current rate once this economic period is over.

Also, it’s important to note that refinancing federal student loans with a private lender can mean losing out on federal benefits such as loan forgiveness or forbearance. People who previously refinanced federal loans with private lenders aren’t benefiting from the current pause in interest.

Will wage garnishment stop during this period?

Yes. All wage garnishment will cease until September 30, 2020. Your HR department will receive a letter from the ED to stop removing funds from your paycheck. If your wages continued to be garnished during this period, contact the ED for a refund.

I have more questions, where is the best place to get answers?

The most comprehensive, accurate source of information is this guide from the US Department of Education.

If you’re unsure about how to proceed, we’re here to talk. Visit patelco.org/FinancialJourney to set up up a confidential one-on-one call with one of our Certified Financial Specialists. They can help you figure out the best path forward with your student loan debt.

About the Author
Danetha Doe is the creator of Money & Mimosas, a site dedicated to helping you achieve financial freedom without having to live too frugally. She’s also the star of the Webby Award-winning TV series Going for Broke, produced by Ashton Kutcher, and has been recognized as a personal finance expert by the Wall Street Journal and Fast Company. Her work has been featured in Elle, The Chicago Tribune, Cosmopolitan, and NBC.